The Evolving Nature of Developing Country Debt and Solutions for Change

This Eurodad discussion paper analyses the evolving nature of developing country debt and solutions for change. It aims to identify relevant reform processes on an international level, and more practically to keep progressive actors that want to drive change informed about existing opportunities.

The nominal debt burden of developing countries has reached the highest level ever seen. While relative debt burdens decreased between 2000 and 2010, these trends have reversed in 2011. Since then debt is on an upward path, when measured in relative terms.

Most striking is the change in debt composition and debt instruments being used. Public debt in developing countries is increasingly being borrowed from private lenders. And private lenders have changed too: Bonds have replaced loans as a predominant form of private lending.

The evolving nature of debt implies that the new debt crises will be different from the last. The old debt regime that the 2030 development agenda inherited has never been fully able put loans to work for development, to prevent debt crises, or to resolve them in a fair, speedy and sustainable manner. The bad news is: the situation is getting worse.

In an era when debt came predominantly from official creditors, there were some institutions that were developed specifically to deal with this issue, even though they were very slow, dominated by creditors and, as a result, created a lot of harm along the way.

The evolving nature of debt requires up-to-date solutions for a development effective debt regime and for debt crisis prevention and resolution that must be able to reach the whole debt stockDebt stockThe total amount of debt. The good news is: this is not news.

Substantial conceptual work has already been done on what a development effective debt regime for the 21st century could look like.
The United Nations (UN) Human Rights Council has adopted Guiding Principles on Debt and Human Rights that attempt to embed the debt regime in a human rights framework.

http://imf.org and the UN to create an insolvency regime, or debt workout mechanism, for sovereign debtors.

What mainly remains to be done is to strengthen these initiatives, overcome political deadlocks and put these proposals into practice. In all of these cases, citizen action will have a key role to play.